JPMorgan analysts have observed that ether (ETH) and other altcoins are continuing to underperform bitcoin (BTC) despite a general recovery in the cryptocurrency market following geopolitical tensions. This trend, which commenced in 2023, is expected to persist unless there is a significant increase in network activity, decentralized finance (DeFi) adoption, and real-world applications for these assets.
Key Takeaways
- Ether and altcoins have not kept pace with bitcoin’s recovery, even after market upticks linked to geopolitical events.
- JPMorgan suggests that improved network activity and utility are critical for altcoins to regain ground against bitcoin.
- Bitcoin has shown stronger recovery in both spot ETF flows and institutional futures positioning compared to ether.
- Previous Ethereum upgrades have not substantially boosted network activity, and future upgrades face scrutiny regarding their potential impact on demand.
- Factors such as diminished liquidity, shallower market depth, slower DeFi growth, and security incidents have negatively impacted the altcoin ecosystem.
The analysis indicates that bitcoin has experienced a more robust recovery, evidenced by both spot exchange-traded fund (ETF) flows and institutional futures positioning. According to the report, spot bitcoin ETFs have recouped approximately two-thirds of their prior outflows, whereas spot ether ETFs have only recovered about one-third. Furthermore, CME futures data suggests that institutional investors have been more aggressive in rebuilding bitcoin exposure than ether exposure, with bitcoin futures positioning nearing full recovery while ether futures remain below previous levels.
Momentum-focused trading entities, including commodity trading advisors and crypto quantitative funds, are still reportedly holding a slightly underweight position in both bitcoin and ether following a deleveraging event last October.
Potential Regulatory Precedent and Future Outlook
The research also questions the capacity of upcoming Ethereum upgrades, such as the anticipated Glamsterdam and Hegota, to improve ether’s relative performance. Over the past three years, Ethereum upgrades have primarily focused on reducing Layer 2 transaction costs. While this has lowered fees on the network, it has also weakened the token burn mechanism, leading to increased net supply growth and consequently, less robust price support for ether. The key determinant for the success of future upgrades will be their ability to stimulate new demand and network activity. Analysts are focused on whether these enhancements can sufficiently boost network engagement or drive demand growth to counteract the ongoing reduction in the burn mechanism and its resultant supply increase.
The broader altcoin market has faced persistent headwinds against bitcoin since 2023. This underperformance is attributed to several factors, including weaker liquidity conditions, reduced market depth and breadth, limited expansion in decentralized finance activities, and a series of security breaches and hacks within the cryptocurrency industry. These cumulative issues have eroded investor confidence in the altcoin ecosystem and have discouraged the allocation of new capital.
According to the portal: www.theblock.co